step by step explanation please. Radix Industries manufactures two products, Club and Chub. Over the years, they practicedtraditional costing. A new Production Manager was hired and is surprised that the companystill uses that old method. She recommends Activity Based Costing (ABC) system to the Boardof Directors. The following information is available for review: ActivityPurchase OrdersInspectionsAssemblingPurchasingInspectionsAssemblingCost DriverNo. of PurchaseOrdersNo. of ReceivingReportsNo. of PartsEstimated Total DriverOverhead Volume$ 150,0002,500$ 400,0001,5004,0004,000$ 200,000Cost Drivers by ProductProduct Club Product Chub1,0006,0004,00010,0008,000You expressed agreement with the new Production Manager and was asked to present resultsfor the following for the month of August 2022.Required:a. Compute the predetermined overhead rate for each cost pool.b. Compute total cost assigned for Purchase Orders, Inspections and Assembling costsassigned to each product, using activity-based costing.c. Compute the cost per unit for each product.

Answered: Activity Purchase Orders Inspections…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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step by step explanation please.

Radix Industries manufactures two products, Club and Chub. Over the years, they practiced
traditional costing. A new Production Manager was hired and is surprised that the company
still uses that old method. She recommends Activity Based Costing (ABC) system to the Board
of Directors. The following information is available for review:

Activity
Purchase Orders
Inspections
Assembling
Purchasing
Inspections
Assembling
Cost Driver
No. of Purchase
Orders
No. of Receiving
Reports
No. of Parts
Estimated Total Driver
Overhead Volume
$ 150,000
2,500
$ 400,000
1,500
4,000
4,000
$ 200,000
Cost Drivers by Product
Product Club Product Chub
1,000
6,000
4,000
10,000
8,000
You expressed agreement with the new Production Manager and was asked to present results
for the following for the month of August 2022.
Required:
a. Compute the predetermined overhead rate for each cost pool.
b. Compute total cost assigned for Purchase Orders, Inspections and Assembling costs
assigned to each product, using activity-based costing.
c. Compute the cost per unit for each product.

Expert Solution

Step 1 Introduction

Note :— I'm assuming that I have to solve only requirement #1&#2 because information of direct material, direct labour and number of units is necessary for requirement #3.

Predetermined Overhead Rate :— It is calculated by dividing estimated overhead cost by estimated cost allocation base.

In activity based costing method, activity rate is used as predetermined overhead rate.

Activity rate is calculated by dividing activity overhead cost by activity usage.

Overhead is allocated between the products on the basis of activity rates.

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